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Thomson Reuters – Corporate Treasury

Challenges in 2012

– Thomas Friedrichkeit, Treasury specialist, based in Vienna [email protected]

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Thomson Reuters, who are we?

1. We operate in 3.000 cities, in 100 countries with 55.000 people around the world 2. 40.000 company customers, with over 500.000 end users 3. Within our financial messaging community we have over 130.000 active members 4. Within our FX trading facilities we do over 100 billion dollar a day of FX spot 5. Our news reach an estimated 1 billion people a day 3

Our team at the conference:

1 Anca Antohi Account Manager Treasury 2 Timea Horvath Client Specialist 3 Thomas Friedrichkeit Treasury Specialist 4 Monika Horvath Client Specialist

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Your challenges…

1.

Get funding in light of Basel III 2.

Regulation • • • • 3.

Constant monitoring Monitor best deposit rates and FX and other instruments Monitor CDS of countries and banks and other corporates Monitor ratings of banks and counterparties Monitor peers and your sector

The times we live in…

• The world has become more uncertain for doing business • Natural disaster, technical disasters and politics push us for constant look out and to monitoring risks • Hard job for treasurers – how to hedge against business and economic risks?

• When and how to raise funds and what cash to hold and where to hold it?

• It got very complex…

Even more Risks ahead…

• European sovereign debt crisis • Impact on the Euro versus your home currency • Constraints on fiscal policies and austerity plans • Regulations may have unintended outcomes – e.g. higher capital requirements for banks, squeeze the real economy • Are there risk free assets out there?

• Does our old economics model still work in light of this global crisis in 1920/1930 style?

Just a look on the current debt crisis – will make us careful… 8

Regulations: Market Themes and Drivers for 2012

Macroeconomic instability

Sovereign debt is a huge issue for most developed economies and there ’s a risk of government default in a number of European countries. The potential for Euro fragmentation and impact of this change on the markets and countries economies.

Regulatory costs and uncertainty

As banks implement Basel III and write down European bond holdings, the availability of capital for profit generation will fall significantly. Controls over proprietary trading and restrictions on internalization will hit profits hard in investment banking operations. There ’s uncertainty over new regulation, particularly in relation to OTC Derivatives trading (e.g. Dodd Frank in the US) which is making it hard for participants in these markets to plan and allocate expenditure for 2012.

Rising cost of participation in OTC markets

In the US and Europe, certain OTC Derivatives trades will need to be executed on a regulated trading platform, cleared through a Central Counterparty and reported to a trade repository. Non-cleared trades may be subject to additional capital charges. This increased complexity will drive up costs, and greater transparency is likely to put further pressure on margins.

† Expected

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G20 RECOMMENDED REGULATORY CHANGES • In September 2009 the G20 recommended reforms to address the concerns raised during the Credit Crisis, with an end 2012 deadline for implementation • The G20 reforms look to have the following impact: • A change to the OTC Derivatives trading workflow • An increase in transparency • Greater supervision of banks • Other areas under scrutiny • Limiting proprietary trading , commodity trading, high-frequency trading, short selling and dark pools • More focus on Hedge Funds, Private Equity Funds and Credit rating agencies

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KEY CURRENT REGIONAL REGULATIONS

EUROPE / UK Still drafting its legislation:

• • European Market Infrastructure Regulation (EMIR) published15 Sept 2010, the Capital Requirements Directive (CRD IV) and MiFID II published 8 Dec 2010. Newly created regulator ESMA (European Securities Market Authority) responsible for implementation Additional to G20 to date: increased transparency requirements for all assets, best execution, HFT, taxing banks (UK specific)

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THOMSON REUTERS RESPONSE TO OTC DERIVATIVES TRADING REGULATIONS – – – Thomson Reuters has worked closely with legislators and regulators to ensure that we fully understand the proposed changes Our priority requirement is to minimize disruption for our customers and to ensure that we provide tools to meet your regulatory obligations We defined the necessary changes to our services in conjunction with our customers and have made them in preparation for the switch over

Themes

• The key themes impacting the Corporate Treasury community Drive for increased operational efficiency Risk Exposure Credit availability & costs Price Sensitivity Access to markets & liquidity Regulation 13

Corporate Treasury Priorities & Daily Tasks

1 MARKET OVERVIEW (MICRO/MACRO) 2 FX OPERATIONS & FX EXPOSURE MANAGEMENT 3 SHORT-TERM FUNDING AND INTEREST RATE EXPOSURE MGMT 4 LONG-TERM FUNDING AND CAPITAL STRUCTURE ANALYSIS 5 INDUSTRY PEER RELATIVE VALUE ANALYSIS 6 TREASURY MANAGEMENT, RISK MANAGEMENT & PORTFOLIO MGMT 7 INDUSTRY SPECIFIC INTELLIGENCE & OVERVIEW

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1 MARKET OVERVIEW (MICRO/MACRO)

Corporate Treasury teams need to keep abreast of the multiple markets they cover

Corporate Treasurers have to keep a 'big picture' overview of the markets

• You need to make decisions to effectively manage the finances of your corporation and understand what your exposure is across a variety of regions and product markets • You need to be aware of the market’s evolving perception of your firm relative to your peer group 15

Keep the overview

2 FX OPERATIONS & FX EXPOSURE MANAGEMENT

Corporate Treasury teams need more information to understand FX Exposure and manage FX operations

FX Risk management is increasingly important following the financial crisis

• Corporate Treasury teams need better information to understand & manage FX exposures and execute FX flows • As corporations expand their global footprint through off shoring or broadening their distribution, they increase their exposure to a larger number of currencies and the risk management process becomes more complex 17

3 SHORT-TERM FUNDING AND INTEREST RATE EXPOSURE MGMT

New benchmarks for understanding and managing short term funding & interest rate risk

Treasurers must understand the factors that are driving interest rate trends and have access to the pricing and tools that will help them quickly analyze specific funding options for short term investment decisions

• You need to understand and analyze specific funding options so you can make the optimal recommendations to internal stakeholders • The level, shape and volatility of yield curves for the cash and derivatives markets in which the firm operates will drive decisions on how to manage interest rate risk most effectively 19

4 LONG-TERM FUNDING AND CAPITAL STRUCTURE ANALYSIS 5 INDUSTRY PEER RELATIVE VALUE ANALYSIS

Long term funding and credit worthiness

Since the credit crisis, accessing credit is more important yet more difficult. Corporate Treasury, now more than ever, need to monitor the credit worthiness of companies with whom they have financial exposure

• Understanding, from a capital structure standpoint, how a company compares to its peers and how the market perceives its relative financial prospects (and therefore its credit risk) helps a Corporate Treasurer take a stand on a given entity • The Corporate Treasurer needs to access the availability of credit for your own company. Being able to see how the company has been positioned against other entities and benchmarks in the market helps them determine how to manage their own books and make future projections 21

CDS - overview

6 TREASURY MANAGEMENT, RISK MANAGEMENT & PORTFOLIO MGMT

Accurately tracking Treasury, Risk & Portfolio activity

Corporate Treasurers predominantly manage their treasury, risk & portfolio management activity through in house or third party systems that must be fed with timely and accurate market data.

• The analysis process must be created in a customizable format that can model your investment strategy and portfolio of products • The analytical systems are likely to be used by multiple departments and, therefore, must be compatible with other products and services being used within the organisation 23

7 INDUSTRY SPECIFIC INTELLIGENCE & OVERVIEW

Corporate Treasurers require industry specific intelligence in asset classes outside FX

Because Corporate Treasurers cover a broad range of assets within their portfolios, they will often need to investigate particular markets in more depth.

• Although FX is the main asset covered by Corporate Treasurers, Money Markets, Rates, C&E and Equities, all require constant monitoring. • A greater level of knowledge is sometimes needed within these peripheral markets if they are to understand their own risk exposure and, therefore, make sound recommendations to their stakeholders 24

Calculate outrights and compare with prices

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